Return to Transcripts main page

American Morning

New York Attorney General Discusses Market Reform

Aired July 02, 2002 - 08:11   ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
PAULA ZAHN, CNN ANCHOR: New York's attorney general is quickly becoming the man to fear on Wall Street. With all the news about WorldCom and other corporate meltdowns, Eliot Spitzer wants Wall Street to play by new rules or they cannot do business with the state's massive pension funds.

Spitzer, along with officials from California and North Carolina, yesterday announced that Wall Street firms must adopt conflict of interest standards that put a wall between stock analysts and investment bankers operating under the same roof.

You may remember Spitzer already won an agreement with Merrill Lynch. He had accused that firm of letting analysts promote stocks to clients even though they were privately trashing it.

The attorney general of New York State, Eliot Spitzer, joins us now.

Welcome back. Good to see you, sir.

ELIOT SPITZER, NEW YORK ATTORNEY GENERAL: Good morning. Good to be here.

ZAHN: Boy, you're stirring up a lot of heat out there.

SPITZER: Well, just a little bit.

ZAHN: So let's get to the fundamental question that every cynical American investor is asking this morning: Can they trust the stock market?

SPITZER: Well, I think right now there's serious questions. I think can we trust the analysts. Can we trust the advice we're being given? We don't know. Can we trust the accounting statements? I'm not sure we can. And I think that's why we need some new rigor. We need some affirmative steps from Washington, from the corporate boardroom, from regulators. We need a demonstration, because every day in the past six months, the business pages have been led with articles about one corporate lie after another.

It's a very disappointing context in which to invest.

ZAHN: Well, to put it into further context, let's look at a statistic here that just came out in a USA Today/CNN/Gallup Poll. Fifty-eight percent of all Americans, at least in this poll, said they are less likely to invest in stocks because of these recent scandals. What can be done immediately to restore some of their faith in the fundamentals of the markets?

SPITZER: Well, first, I think everybody who participates in this process, from Capitol Hill to the SEC to the state regulators, we need to set as an objective restoring investor confidence. That means that the CEOs need to swear that the accounting statements they issue are accurate. That means the analysts who are reporting and giving advice to the American public need to give honest advice not tainted by the pressures from the investment banking side. The investment banks need to say our responsibility is to you, the investor, above and beyond and before we are worried about making money.

That sort of ethic has to be restored. There has been a decline in ethics on Wall Street in the past decade. We have got to turn it around.

ZAHN: But when you talk about Americans having faith in analysts once again, I want to share with our audience some of the e-mails you covered from -- or uncovered from analysts at Merrill Lynch describing, in their words -- I mean, to use their exact words -- "dogs" and "crap stocks" that we're publicly recommending.

What else have you uncovered?

SPITZER: Paula, it was, All right, well, we have seen so many e- mails like that. We have seen throughout the industry that the investment banking side was put ahead of the responsibility to give honest advice to the consumer. That is what got me outraged. It's why the American public is outraged. It's why we are trying to take tough, quick action to say to the investment houses, to say to the CEOs, you have got to reform your practices, because the American public, as you just said, Paula, no longer has confidence in Wall Street, and we've got to change that.

ZAHN: Reforming the rules is one thing, but a lot of Americans want to see people fired over this.

SPITZER: Well...

ZAHN: Are they going to see that happen?

SPITZER: There is no question people will be fired. I believe people will go to jail. Right now, we are struggling to get the government, the federal government to act appropriately, to act decisively. They have not done so yet. The states, unfortunately, have taken the lead in this battle. I wish the SEC would hop in and get more aggressive, articulate tough rules.

That is what we need, because self-regulation of Wall Street failed over the past decade. It led to an imperial CEO who just gave themselves options package after options package, and they left the shareholder with less and less. And we have got to change that.

ZAHN: Anybody listening to you this morning can hear how passionate you are about this. But according to "The Wall Street Journal," part of what you're doing has to do with your motivation politically. And let me put up on the screen, because I want to give you a chance to respond to this, what "the Wall Street Journal" wrote in an editorial.

They are talking about you, and they say, "Which brings us to the question of the attorney general's motives. According to some media reports, Mr. Spitzer has his eye on higher political office. As Rudolph Giuliani's history shows, prosecutions of major Wall Street figures can be a potent campaign launching pad."

Is this your launching pad to run for governor of New York?

SPITZER: No. Paula, I am running for reelection to be attorney general. This is the job I love. My job is to protect investors, protect the public. Notice they don't say I'm wrong. And, you know, they can ascribe all sorts of motives. They don't know what my motives are. They haven't the foggiest idea. "The Wall Street Journal" editorial page, thankfully, does not influence very many people.

But let me tell you one thing: They cannot say I'm wrong, because I'm right. My job is to protect the public. That's what I'm doing, and that's what I believe in.

ZAHN: I would think those "Wall Street Journal" editors are scratching their heads, saying, Well, we do have some impact on people's opinions.

SPITZER: Well, we'll duke it out at some point.

ZAHN: There are people who buy into that.

But once again in terms of investors' confidence, you say they have every reason to doubt the market right now.

SPITZER: Every...

ZAHN: Should they pull out? Is that what you're telling them to do?

SPITZER: No, no. Well, look, I can't give them advice for them to pull out. Maybe the market is at a low. But I think right now we know that the accounting statements that we have been given and told to rely upon by one major company after another have been cooked. And when they're cooking the books; and when the auditors don't pick it up; and when the auditors are part of the problem; when the lawyers, unfortunately, have become part of the problem; when the audit committees are failing to pick this up; every chain, every link in the chain of protection for the American public, broke.

We had a perfect storm of corporate failure in Enron, and over and over again, there's a problem there. Somebody has to wake up and shake and rattle the cage and say, Guys, change your behavior. This is not the way to run a show.

ZAHN: Eliot Spitzer, thank you for dropping by this morning.

SPITZER: Thank you, Paula.

ZAHN: Appreciate your time.

TO ORDER A VIDEO OF THIS TRANSCRIPT, PLEASE CALL 800-CNN-NEWS OR USE OUR SECURE ONLINE ORDER FORM LOCATED AT www.fdch.com